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    Set up severance pay

    Article ID: 1000350

    Overview

    This article explains how to set up severance pay for an employee who is being terminated.

    Expected Outcome

    You will create a payroll item for severance pay.

    Assumptions

    An employee has been terminated from your company and you have agreed to severance pay as part of the separation agreement.

    Details

    To set up a new payroll item for severance pay:

    Add a new payroll item.

    Select Custom Set Up and click Next.

    Select Wage Item and click Next.

    Select Bonus (this allows for a flat amount of pay without requiring hours or a quantity and doesn't interfere with the salary amount).

    A Bonus type doesn t change the way the item is taxed. Severance pay is not taxed at the supplemental rates for either federal or state withholding.

    Click Next.

    Select the Expense Account and click Finish.

    Create Severance Check

    In QuickBooks:
    1. Click the Employees drop-down menu.
    2. Select Pay Employees and click Unscheduled Payroll.
    3. Create the paycheck for the employee using the Severance Pay earnings item.
    When you create the severance paycheck, add this new item to the earnings box on the check and enter the rate of the severance pay. If you use an existing payroll item, add an additional line to the check to differentiate it from normal wages.

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